Chicago PMI Weak. Just Another Bad Number. Evidence Is Mounting

April 30, 2013

The market is right at its all-time high. Italy elected a new prime minister and that provided a positive backdrop yesterday. End of month fund buying also pushed stocks higher. The action today could be rather subdued ahead of major announcements.

Official PMI’s will be posted tomorrow. Europe is in horrible shape and China’s growth is slowing. This was revealed in the flash numbers and the official release will simply be a reminder that global economic conditions are fragile.

The FOMC will release its statement tomorrow, but I am not expecting any change in rhetoric. Last month, there were some rumblings about the end of quantitative easing. On the other hand, traders are expecting the ECB to cut rates by 25 basis points. Conditions are dire and this could be a sell the news event.

Consensus estimates for ADP are 155,000 new jobs in the private sector. Anything below 130,000 could be problematic. ISM manufacturing missed estimates last month and the second bad number would spark selling. These two releases will set the tone for Friday.

Earnings season has peaked and the focus will shift to economic activity. The evidence is mounting and I believe this is more than a seasonal adjustment. The economy went through a soft patch in April 2012 and traders have discounted this weak round of news. Almost every release in April has missed expectations. We can add Chicago PMI to the list this morning.

Overnight risk is greater than the reward and I am focusing on day trading. I don’t mind missing the last 2 to 3% of this rally, but I don’t want to have the rug pulled out from under me.

I suspect that Asset Managers feel the same way I do. The fear of missing the next big rally is very low and the bid has weakened. When we see the next round of profit taking, the decline will be deeper and it will last a little longer because buyers have become passive.

I won’t get bearish until I see late day selling and follow-through the next day. I want to see technical support fail and follow-through selling for a couple of days. I don’t believe the market has been down three consecutive days this year. If we finally see that, it would be a sign that the trend is reversing.

The market feels weak this morning and profit takers could be getting out ahead of the economic releases. If the market makes a new low for the day after 2 hours of trading, the selling will pick up.

Reduce overnight risk and wait for the news.
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